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Scale Effects in Markets with Search

  • Barbara Petrongolo
  • Christopher Pissarides

Estimates of aggregate matching functions may miss important scale effects in frictional labour markets because of the reactions of job seekers to scale. We estimate a semi-structural model of search and matching on a British sample of unemployed people, testing for scale effects on the probability of receiving an offer and on the distribution of wage offers. We find them only in wage offers but we also find that reservation wages rise to deliver higher post-unemployment wages but not faster matches. So aggregate matching functions should be unaffected by scale but wage equations should be showing them. Copyright 2006 Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 116 (2006)
Issue (Month): 508 (01)
Pages: 21-44

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Handle: RePEc:ecj:econjl:v:116:y:2006:i:508:p:21-44
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  1. Eckstein, Zvi & Wolpin, Kenneth I, 1995. "Duration to First Job and the Return to Schooling: Estimates from a Search-Matching Model," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 263-86, April.
  2. Blanchard, J.O., 1989. "The Aggregate Matching Function," Working papers 538, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  4. Edward L. Glaeser & David C. Mare, 1994. "Cities and Skills," NBER Working Papers 4728, National Bureau of Economic Research, Inc.
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  6. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
  7. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
  8. Narendranathan, W. & Stewart, M.B., 1989. "Modelling The Probability Of Leaving Unemployment: Competing Risks Models With Flexible Baseline Hazards," The Warwick Economics Research Paper Series (TWERPS) 331, University of Warwick, Department of Economics.
  9. Bloemen, Hans G & Stancanelli, Elena G F, 2001. "Individual Wealth, Reservation Wages, and Transitions into Employment," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 400-439, April.
  10. Coles, Melvyn G & Smith, Eric, 1996. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," Economica, London School of Economics and Political Science, vol. 63(252), pages 589-97, November.
  11. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  12. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  13. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  14. Berg, G.J. van den & Gorter, C., 1996. "Job search and commuting time," Serie Research Memoranda 0001, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  15. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Barron, John M, 1975. "Search in the Labor Market and the Duration of Unemployment: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 65(5), pages 934-42, December.
  17. Alan Manning & Jonathan Thomas, 1997. "A simple test of the shirking model," LSE Research Online Documents on Economics 20300, London School of Economics and Political Science, LSE Library.
  18. Christensen, Bent Jesper & Kiefer, Nicholas M, 1994. "Measurement Error in the Prototypal Job-Search Model," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 618-39, October.
  19. van den Berg, Gerard J, 1990. "Nonstationarity in Job Search Theory," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 255-77, April.
  20. Eran Yashiv, 2000. "The Determinants of Equilibrium Unemployment," American Economic Review, American Economic Association, vol. 90(5), pages 1297-1322, December.
  21. Warren, Ronald Jr., 1996. "Returns to scale in a matching model of the labor market," Economics Letters, Elsevier, vol. 50(1), pages 135-142, January.
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